Chapter 7

A prepayment is:
1. A payment received by the business from a customer.
2. A payment made by the business for services used during the year.
3. A payment made by the business for services not yet used.
4. None of the above
Trade payables arise as a result of:
1. A transaction whereby the business receives goods or services but does not pay immediately.
2. A transaction whereby the business provides goods or services but is not paid immediately.
3. The owner putting money into the business
4. None of the above
An accrual arises as a result of:
1. A business providing services for which it has not been paid
2. A business using services for which no invoice has yet been received
3. A business paying money in advance for services yet to be received
4. A business planning to use services in the future
Amounts receivables arise as a result of:
1. A transaction whereby the business receives goods or services but does not pay immediately.
2. A transaction whereby the business provides goods or services but is not paid immediately.
3. The owner putting money into the business
4. None of the above
Identify the correct entries for the worksheet in respect of a business finding out that some of the trade receivables will not be received i.e. a bad debt.
1. Reduce cash and reduce accounts payable
2. Reduce cash and reduce accounts receivable
3. Reduce accounts receivable and accounts payable
4. Reduce accounts receivable and charge an expense
5. None of the above
An increase in the amount of accounts receivable over the year will:
1. Reduce profit
2. Increase the cash received
3. Make the cash flow figure lower than the profit figure
4. Make the cash flow figure higher than the profit figure
5. None of the above
A decrease in the amounts payable over the year will:
1. Increase profit
2. Reduce profit
3. Make the cash flow figure lower than the profit figure
4. Make the cash flow figure higher than the profit figure
5. None of the above
The treatment of cash sales and credit sales differs because:
1. Only cash sales are included as sales revenue
2. Credit sales are only recognised when the money is received
3. In the former case the entry is to cash and sales whereas in the latter case it is to payables and sales
4. In the former case the entry is to cash and sales whereas in the latter case it is to receivables and sales
5. None of the above